Another large batch of March quarter earnings results has been released since yesterday’s close, yet those results have been subjugated it seems to other items, namely the continued fallout in the regional bank stocks and today’s FOMC decision.<\/p>\n\n\n\n
The two have been conjoined in a certain respect, as the steep losses seen yesterday in the regional bank stocks (and other banks) has fueled chatter that the Fed might be\/should be compelled to hold off on a rate hike today due to concerns related to financial stability.<\/p>\n\n\n\n
Now, the fed funds futures market has been relatively slow to embrace that thinking. The CME FedWatch Tool currently shows an 85.4% probability of a 25 basis points rate hike today to 5.00-5.25%. We suspect the FOMC will act in accordance with the majority view of the fed funds futures market, assuming the Senior Loan Officer Survey, which will be released publicly soon, hasn’t given the Fed quite the credit tightening scare.<\/p>\n\n\n\n
The market should be able to tolerate another rate hike since that has been the consensus view for some time now, but what it likely won’t tolerate well is a directive and\/or a Fed Chair that fails to dangle the carrot of a pause in its tightening effort at the next meeting.<\/p>\n\n\n\n
Alas, the narrative ahead of the FOMC decision at 2:00 p.m. ET is that the Fed will be “walking a fine line,” trying to temper concerns about financial stability risk while ensuring it doesn’t sound as if it is going soft on fighting inflation, which is still well above the Fed’s 2.0% target, yet not pre-committing to further rate hikes.<\/p>\n\n\n\n
It is quite possible, too, that any decision today won’t be reached unanimously. That would keep the market guessing, so to speak, about what comes next for the economy and monetary policy, which would in turn keep the capital markets in a choppy state.<\/p>\n\n\n\n
To be sure, Fed Chair Powell, speaking at 2:30 p.m. ET, will have quite the communication job on his hands today, knowing as well that the debt ceiling matter is still unresolved and is quickly becoming a bigger matter based on Treasury Secretary Yellen’s latest X-date guidance.<\/p>\n\n\n\n
Separately, yesterday’s shocking action in the regional bank stocks is making many market participants think there could be a bigger matter afoot in the banking industry. The stocks have been volatile this morning in pre-market action, although many are working their way back now from larger, pre-market losses, which has helped keep the equity futures somewhat stable.<\/p>\n\n\n\n
Currently, the S&P 500 futures are up three points and are trading slightly above fair value, the Nasdaq 100 futures are up 14 points and are trading 0.1% above fair value, and the Dow Jones Industrial Average futures are down two points and are trading in-line with fair value.<\/p>\n\n\n\n